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- [00:01]
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- [00:30]
Andrew Keys
Show me where the high quality liquid assets are settling and 90% of them are settling on Ethereum. Show me where the majority of the stable coins are. The majority of them are settling on Ethereum. Show me where the L2s are being anchored to. They're being anchored to Ethereum.
- [00:54]
Jen Senasi
Hey everyone, I'm Jen Senasi. It is a big milestone for Ethereum. Today marks Ethereum's 10th anniversary and as the network evolves and games mainstream traction, I'm joined by Andrew Keys, chairman of Ether Machine, to talk about the future of Ethereum, the role of Ethereum as a commodity and what comes next for institutional adoption. Hello.
- [01:15]
Andrew Keys
Hello. Thanks for having me, Jen.
- [01:16]
Jen Senasi
Of course. Thanks for being here. I just gotta ask you, it's eats 10th anniversary. I mean, how are you feeling today? What are you reflecting on?
- [01:24]
Andrew Keys
I feel great. Happy birthday, Ethereum. Ten years ago I was in a little wework in Bushwick, New York, in Williamsburg actually. I remember the Genesis block like it was yesterday. We actually were setting up miners in my sub 1000 square foot apartment in Manhattan. It was 85 degrees and we were sweating and my electricity bill that month was something like $3,000, which was like six times my typical electricity bill. It's been an amazing journey and I really think the best is yet to come.
- [02:03]
Jen Senasi
All right, 10 years later, a lot has happened within the Ethereum ecosystem. It looks like you're out of that apartment in Bushwick. Talk to me about what you're looking forward to. I mean, I know the Ether Machine is going to be a reality in about 90 days, but talk to me about what you're looking forward to when it comes to the Ethereum ecosystem.
- [02:24]
Andrew Keys
So what I'm looking for is the actual adoption of the application layer. We are seeing the first iteration of product market fit with stablecoins, but that is the beginning of the digitization of all assets, the upgrading of our legal and agreement architecture on Earth where we're going to see the velocity of money greatly improve. And we'll see things like all assets be digitized and embedded into digital agreements that can create an employment contract that gets paid by the minute as an.
- [03:05]
Jen Senasi
Example, we're talking about the evolution of the financial system and the evolution of the legal system. Two things that have historically moved very, very slow. So Andrew, I want to, I want to hear from you what your timeline looks like for that. When you think about this innovation, you think about the future you're building towards, how quickly before this evolution is really a reality for all the folks who are watching this show.
- [03:27]
Andrew Keys
So good software takes about a decade to build and coincidentally, here we are a decade later from the genesis block of Erie proof of work consensus algorithm. What I believe we need to have happen was a the technology needed to work B there needed to be developer tools, standards created things like the ERC20 token standard gave us a common framework by which to tokenize all assets as an example. And then we, we needed regulatory clarity. So, so the, the number one beneficiary of the Genius act that passed only last week was or two weeks ago is Ethereum because the majority of stablecoins in the world settle to Ethereum. What I think was happening with regulatory headwinds during the Gensler era should be regulatory tailwinds for the Ethereum ecosystem. So I think we needed the adoption of technological standards, the maturation of the technology and regulatory clarity of which we have all three now. I think the next decade is going to be fascinating.
- [04:36]
Jen Senasi
Let's talk about Ether Machine. Now I know it is going public via SPAC with over $1.5 billion worth of ETH on the balance sheet. Talk to me a little bit about the strategy and long term vision here.
- [04:48]
Andrew Keys
Sure. So the Ether Machine is an institutionally focused active manager of Ether and Ether denominated yield. And so what I'd say is there are a few points of differentiation and first we should differentiate against Bitcoin. So this is not a buy and hold Bitcoin strategy like mstr. This is the active management of Ether because Ether is a productive asset where we can stake, restake and participate in the decentralized financial economy.
- [05:20]
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- [05:51]
Jen Senasi
Bit more about that because I know staking is a key component here. I saw some of the interviews you've done previously on this and earning that yield for folks who have shares of the Ether machine is really one of the main points that I heard heard in those interviews. What happens when ETF products start offering staking or people just start learning how to stake on their on their own with a platform like Coinbase, if they have under the threshold to run their own validator or if they have more than 32 eth, they are just, you know, staking that and, and doing it on their own.
- [06:24]
Andrew Keys
Great questions. So first let's start with the ETPs and the ETFs. So ETPs are in Europe, ETFs are in the United States. And right now the ETFs do not have staking, but we do believe that they will eventually enable staking. But I think a good proxy are the ETPs in Europe. And the ETPs in Europe only stake 50% capacity, meaning that if you had a billion euros In a European ETP, you would only be staking 500 million euros. And the basement yield, what I would call just vanilla staking Yield, is about 3%. So in that example they're earning about 1 1/2% because they're only staking on the 500 million. The reason why they only stake that small percentage is due to a technical nuance within Ethereum called the withdrawal queue. Meaning that if I wanted to unstake my ether today, it could take a couple of days.
- [07:24]
Jen Senasi
I think recently we saw it taking up to 11 days.
- [07:27]
Andrew Keys
Yep. And God forbid, if a nuclear bomb were to drop somewhere in the world or some other horrible risk, risk off event, something like Covid, where the whole world went risk off, some type of black swan, let's call it 50% of the stakers wanted to unstake, or 70% or 25%. You know, that withdrawal queue would enlarge from the two weeks that it is today to six months or a year. And that doesn't jive well with the withdrawal requirements of an ETF. It's a 24 hour redemption requirement. And because this is ether denominated, it's not even dollar denominated, it's not an insurable risk. So the best that these ETFs and ETPs are going to do is they're just going to stake less. There was some consideration maybe they could use a liquid staking token, but we've just seen one of the largest ones, Steth Unpeg Blackrock's not going to be able to use that. And you're also introducing smart contract risk. So I think that it's very important to like, consider that part of the equation on the retail exchange. Part of equation, what I'd say is it's extremely expensive. I won't cite, you know, specific exchanges, but the fees that are used at the exchanges are well over 25 to 30%, which is egregious in my opinion, when we think about that. A, we're able to actively manage at full capacity and the ETFs are only able to do what I would call vanilla staking. They're not going to be able to do restaking and they're not going to be able to do defi. So this is kind of staking plus active management, which is our core differentiator.
- [09:12]
Jen Senasi
And I guess when it comes to staking yourself, you need to amass that32 ETH, which many people might not find themselves in a position to do that. Now, I know in some of the interviews I watched previously you said that ether is essentially this commodity for the Internet of the future. You just said that now to me just a few minutes ago. When you, when you think about this, are there any risks in your mind that Ethereum gets displaced by another L1 or a chain that maybe doesn't even exist yet?
- [09:38]
Andrew Keys
I don't. I feel as though we're seeing power law dynamics occurring within the Ethereum ecosystem. A great barometer are high quality liquid assets. And where they reside, there are about $250 billion of high quality liquid assets on blockchains, things like Stablecoins or bars of gold, barrels of oil, stocks, bonds, derivatives. And of those $250 billion, 90% of those high quality liquid assets are residing and settling on Ethereum. The next participant is about 9%, which is Solana. And then there's kind of, you know, little micro asset allocations on other smaller blockchains. And that reminds me very much of Google with search. When's the last time you used Yahoo or Bing or Ask Jeeves? Liquidity begets liquidity. And what we've seen are all of the real companies meme coins, Solana can have all the Meme coins they want, but you talk about coinbase as their layer two base settling to Ethereum. Robinhood just announced their L2 settling to Ethereum. We're seeing Kraken, their L2 settling to Ethereum. I think that now that we have this regulatory clarity, at least with Stablecoins, we're going to see a lot more of that and the next act is going to have more impact. That's going to help Ethereum's tailwinds.
- [11:07]
Jen Senasi
I spoke to two folks recently, one was Joe Lubin who is I believe on the board now of Sharplink helping them acquire an eth Treasury. I spoke to Tom Lee recently, chairman of Bitmine, also acquiring an eth treasury with a strategy to stake most of it. What differentiates the Ether machine here?
- [11:28]
Andrew Keys
Yeah, so, so what I'd say is we have a different strategy than both of those. And I would say first and fore the structure rather than acquiring a pre existing micro cap company, we went with a de novo structure. If I wanted exposure to Ethereum I would want pure play exposure to Ethereum. The yield that it's generated I wouldn't want let's call it 90% exposure to Ethereum and then 10% exposure to a Bitcoin mining company or a gaming company or any or biotech company for that matter. So, so basically we think that it's important to have a clean entity with no preexisting governance issues, no preexisting operating businesses, no preexisting liabilities. And we created this in a de novo structure to do so. So I'd say that's one piece and that's what really resonated with our investors, which are primarily institutions. They wanted just pure play exposure to Ethereum and not the distraction of pre existing operating businesses. For example, a Bitcoin mining company may convert all their assets from Bitcoin to Ethereum but you need hardware, you need electricity, you need real estate to operate a mining company. And a bunch of these mining companies, they have data center leases that are 10 years old and they're in year four. If you want pure play exposure to Ethereum but you've got to pay 6 years left on a lease, that's not exposure that I would want and that's just that example, you know, if you know there are a bunch of biotechs that are being kind of reversed into. So I think the structure is important. Secondarily there are acquisitions of Ether but they're not necessarily done at spot. So one example is we're hearing that companies are acquiring Ether through call options. So so basically if we have a call option and it's in the money, that's great. But you're not owning the actual underlying physical ether and generating that yield. So that's like having a stock that pays a dividend but not availing yourself to the dividend. So we think that that's important, that we're actually actively managing the risk on the asset. And what I'd say is that we've Been I believe the only one to come to market with a head of Defi that's actually going to be participating in the Defi ecosystem. So I think that's another differentiation. And a lot of this is you see these operating companies, they have their legacy team and maybe it's part time chairman that also has lots of other businesses that they have to run. Whereas this is a full time exclusively focused effort on institutional management of Ether.
- [14:22]
Jen Senasi
Tell me about that head of Defi. Why is that position a differentiator for you? What should investors know about ahead of Defi and why that sets you apart?
- [14:31]
Andrew Keys
Because the staking business, as more validators come online, will continue to commodify. And when proof of stake went live, let's call it four or five years ago, the yields were 20% and they've dwindled down to 3% and they can continue dwindling down to 2%. And if one wants to participate in the decentralized financial economy and earn other yield, it's going to be important to be able to manage those risks. So we believe that we're going to be able to materially outperform the ETFs and we also believe that we need to understand smart contract risk, liquidity risk, duration risk. And so we have a CFA who worked at JP Morgan and Fortress. So a strong traditional financial background that also is a deep engineer and was one of the core contributors to Synthetix, which is a large Defi protocol and was one of the heads of Defi within consensus. And basically we're mapping the opportunities of the ecosystem. And we also think that this vehicle really should bridge as an educational tool for Wall street to learn about Ethereum. And so when we have to have our quarterly guidance because we're a publicly traded company now, sell side research analysts at bulge bracket banks are going to be learning what is Ethereum, what is staking, what is Defi. And basically our team is going to be educating them so they can analyze our stock.
- [16:14]
Jen Senasi
I spoke to Joe Leuven recently, like I told you, and I think he was half joking when when he said this, but I asked him what Wall street still needs to learn about Ethereum and he said all they care about is that it's going to go up.
- [16:25]
Andrew Keys
I think that's fair. And, and I think that if Wall street liked Bitcoin, they're going to like an asset that also provides yields as better deflation. And so I do think that there's more to understand about Ethereum. Bitcoin is a singular asset on the Blockchain with a singular function send. The bitcoin blockchain has one asset which is Bitcoin and one function which is sent. Where Ethereum we can tokenize infinite assets and we can create arbitrarily complex logic and do much more than just send.
- [17:01]
Jen Senasi
Yeah, I think, I think when we talk about the Ethereum ecosystem, there is a lot, there a lot of education that still needs to happen for investors who are looking at the asset, especially when they're comparing it to Bitcoin, they are two very different beasts, I guess you can say in the digital asset world. I just said Joe Lubin said Wall street cares about the price going up. Tom Lee told me he thinks it's going to get to $15,000 soon. Where do you see the price heading?
- [17:24]
Andrew Keys
I don't want to make price targets, but what I will say is this is the tam. The total addressable market is essentially the Internet, which is infinite in my opinion.
- [17:36]
Jen Senasi
And on that Bitcoin Ether note, you know, I see critics pointing to Ether's non cap supply as a little bit of a weakness when compared to Bitcoin's 21 million fixed supply. How do you respond to concerns there about inflationary design, how Ethereum addresses inflation?
- [17:54]
Andrew Keys
I actually think it's a feature, not a bug. The world is a dynamic place. It's not a static place. With Ethereum's disinflationary supply, it actually has a tighter inflation mechanism than Bitcoin. And furthermore, through EIP 1559 and EIP 484,4, the Ethereum improvement proposals, basically there is a burning mechanism that is based upon volume on layer one which is 1559 and layer two which is 4844. So basically this could actually burn more Ether faster, which does not happen within Bitcoin. So I actually think the dynamic nature of Ether's supply is a feature, not a bug.
- [18:42]
Jen Senasi
And Andrew, the last thing I'm going to ask you before I let you go is there was this somewhat viral clip of you saying that you don't own any Bitcoin because you'd rather have an iPhone than a landline. And not long ago, people who joined me on this show said that ethereum was the BlackBerry of crypto. It was definitely a different environment that they said that in, but it wasn't long ago, I think it was less than a year ago, folks were telling that to me when they joined the show. How would you respond to that? And what do you think has flip the switch so so quickly for those.
- [19:12]
Andrew Keys
Naysayers I like to be punchy with facts. Right. And show me where the high quality liquid assets are settling and 90% of them are settling on Ethereum. Show me where the majority of the stablecoins are. The majority of them are settling on Ethereum. Show me where the L2s are being anchored to. They're being anchored to Ethereum. When you hear all these public companies that are building these things, show me the developer experience. So you know electric capital, I love those guys and their and gals and their developer reports where it goes through the GitHub stars, the forks and basically the majority of the actions on Ethereum. And so until other data show me the evidence and we can make analogies all day long but. But let's use the data.
- [20:02]
Jen Senasi
Andrew, thank you so much for joining me on Ethereum's 10th anniversary. Happy birthday Ethereum and good luck with the upcoming SPAC deal.
- [20:12]
Andrew Keys
Thank you.
- [20:20]
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Andrew Keys
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Andrew Keys
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- [20:39]
Andrew Keys
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- [20:42]
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